BOND REPORT: Unexpected German Election Result Draws Money Into Bunds And Treasurys
Treasury prices rose, pushing down yields, on Monday to follow German government bonds higher after mixed results from the Germany's election raised new questions about the eurozone's political backdrop.
U.S. government paper and German sovereign debt tend to trade in the same direction as they share similar qualities in that they are highly liquid and are viewed as relatively risk-free places for investors to park money.
The election saw German Chancellor Angela Merkel's center-right Christian Democrats come in first with around 33% of the vote, their lowest share since the end of World War II. The center-left Social Democrats saw their support fall to less than 21%, marking their worst showing since before World War II. While Merkel's party is expected to lead a new coalition government, negotiations are expected to be prolonged. With an element of uncertainty still at play, investors say the outcome has stalled the eurozone resurgence, driven by improving economic conditions and Emmanuel Macron's victory over his far-right counterpart Marine Le Pen (http://www.marketwatch.com/story/emmanuel-macron-5-things-to-know-about-the-man-poised-to-be-frances-president-2017-04-24) in the French election this summer.
See: How Merkel's choice of partner could set the tone for the euro (http://www.marketwatch.com/story/dont-call-the-german-election-boring-it-could-mean-a-huge-shift-for-the-eurozone-2017-09-18)
Analysts at UBS estimated it could take three to six months for Merkel to form a new coalition, with a fully functioning government expected to settle in at early 2018.
The BlackRock Investment Institute saw the result "slowing momentum behind efforts to strengthen the eurozone."
The benchmark 10-year Treasury yield fell more than 2 basis points to 2.239%. The 30-year bond yield experienced a similar drop to slip to 2.770%, while the 2-year Treasury note yield shaved a basis point to edge lower to 1.437%. Bond prices move in the opposite direction of yields.
Likewise, the yield for the German 10-year Treasury note, or the bund, shed 3.6 basis points to 0.413%. German business confidence measures had also slipped (http://www.marketwatch.com/story/german-business-sentiment-falls-in-september-ifo-2017-09-25) as manufacturers' showed signs of slowing down.
Beyond politics, central bankers will dominate the docket as Monday will see speeches from Chicago Fed President Charles Evans at 12:40 p.m. Eastern and Minneapolis Fed President Neel Kashkari at 6:30 p.m. New York Fed President William Dudley also spoke at Syracuse, NY.
The busy schedule will give fodder to analysts seeking policy clues and the rationale for senior Fed officials' decision to support one more rate increase this yea (http://www.marketwatch.com/story/still-on-course-fed-signals-one-more-rate-hike-in-2017-2017-09-20)r, even after several months of lackluster inflation data.
Read: Two Fed officials say 'normal' interest rates may peak far below prior cycles (http://www.marketwatch.com/story/feds-williams-says-normal-interest-rate-around-25-2017-09-22)
European Central Bank President Mario Draghi is also set to speak at 9 a.m. Eastern at European Parliament.
(END) Dow Jones Newswires
September 25, 2017 09:37 ET (13:37 GMT)